What are Government Securities?
Government Securities are securities
issued by government or its nominated agencies (but do not include
PSUs). Securities issued by Central Government are considered to be the
safest investment option for that country as repayment of principle and
interest is guaranteed by the government. Since, these are considered
to be safest and risk free investments, interest rates are generally very
low. Interest rates on government securities are termed as Risk Free
Interest Rate for that country.
Interest rate of other
securities like Bank Fixed Deposits, Corporate Fixed Deposits,
Corporate Debentures etc. are higher than the risk free interest rate.
Difference between risk free interest rate and interest on a
particular security is termed as Risk Premium. Risk premium is the
premium you are getting for taking higher risk.
it is not possible for retail investors to directly invest in
Government Securites as the investment limit is quite high (Rs. 5
Crores). Hence, practically Gilt Funds
are the only options through
which a retail investor can invest in Government Securities.